"The Crisis of Global Capitalism: Open Society Endangered," by George Soros

The secret of the spectacular investment success enjoyed by George Soros, one friend and fellow fund manager wrote recently, is his continued willingness to take "big positions."

In his latest book, Mr. Soros warns that the disintegration of the global capitalist system is nigh — a big position indeed, one that attempts to predict what might happen to countless billions of other people's dollars as well as a few of his own.

As critics have gleefully pointed out, financial markets have shown little inclination so far to heed his grim predictions. In fact, the worst of the Asian storm seemed to pass almost the moment the ink was dry on this manuscript last autumn. To be fair, calling the precise top or bottom of a lengthy boom/bust cycle is hardly something we can realistically expect even from a man as smug about his prescient insights and money-making record as the 68-year-old Hungarian émigré. "Busts are usually quite compressed," Mr. Soros writes, "[but] this one is quite drawn out and occurs at different times in different parts of the system...the length of the bust bears testimony to the complexity of the global capitalist system."

Only the most complacent onlookers would insist that the markets have called this doom monger's bluff.

The Crisis of Global Capitalism: Open Society Endangered was originally intended as a leisurely discussion of the Soros philosophy and the somewhat arcane concepts that lie at its heart. Mr. Soros asserts he was aware of the flaws of the global system six months before they were exposed by the collapse of the Thai baht in July 1997 but that this event, and (more particularly) the Russian financial meltdown a year later, gave his tome a topical urgency. Armed with what he believed was a framework to explain the dramatic events around him, he contacted his publisher, got scribbling and rushed into print.

Timing, of course, is everything — in book publishing as well as the stock market. While the "peg" for the book was compelling, in his haste to reach a wider audience Mr. Soros settled for a flawed manuscript with many repetitive passages, a rather turgid abstract style in the first few chapters and at times a self-conscious effort to fit the case study to the theories he had earlier propounded.

Mr. Soros emerges from the book as a complex and challenging character, though not because of his notorious speculation or philanthropy. That combination, after all, is relatively common. No, what makes Mr. Soros interesting is that unlike most self-made billionaires of the past 20 years, he is no longer bewitched by the magic of the marketplace.

The book's main thesis, in fact, is that just as totalitarian regimes such as those in Nazi Germany and the Soviet Union posed the main threat to the Open Society espoused by the philosopher Karl Popper in 1944, so global capitalism is today the biggest challenge to civil society (his term for a free, pluralistic democracy).

For Mr. Soros there are two fundamental flaws in modern capitalism. The first is the inherent volatility of financial markets, a defect overlooked by those he labels "market fundamentalists" who believe that markets swing like a pendulum. This "equilibrium" theory is based on a false analogy with the natural sciences in which physical objects move independently of what anyone thinks and to which the "scientific method" can therefore be applied.

Financial markets, by contrast, attempt to predict a future that is contingent on the decisions people make in the present. Instead of just passively reflecting reality, they are actively creating the reality that they, in turn, reflect. There is a two-way connection between present decisions and future events — Mr. Soros calls it reflexivity — which leads to erratic market behavior, swinging from country to country and knocking the weaker ones over. This, he says, is more characteristic of a wrecking ball than a gentle pendulum.

(The letter Mr. Soros wrote to the Financial Times last August calling for a controlled devaluation of the ruble — thereby triggering the crisis it was supposed to avert — was arguably a classic illustration of reflexivity.)

Even more than market chaos, Mr. Soros deplores the way in which "market fundamentalism" has invaded fields far outside business and economics and how social activities and human interactions are increasingly looked at as transactional, contract-based relationships valued in terms of a single common denominator: money.

Historically, democracy has been an important counterweight to the capitalist system, but in an era of globalization, Mr. Soros believes, no individual state can resist its power. Collective decision-making institutions either do not exist or are not able to effectively intervene. While ideological global capitalism has thankfully swept away corrupt states, Mr. Soros worries how long it will be before it undermines reform-minded governments and even destroys itself.

The Crisis of Global Capitalism veers between this Wagnerian backdrop and a more detailed account of recent events. The belief Mr. Soros holds that last year's events were a "false bottom" rests on a combination of flaws in the banking system that were exposed by the Russian meltdown; the actions of countries at the "periphery" (notably Malaysia) that appear to be opting out of the global capitalist system, and the inadequate response of the International Monetary Fund and Group of Seven governments (the "center") to the crisis. Mr. Soros is critical of the I.M.F. for favoring lenders at the expense of borrowing countries and for its inability to prevent a crisis (as opposed to simply responding to one). Far from calling for the I.M.F.'s abolition, however, Mr. Soros wants a stronger international regulatory framework with institutions able to act as they would have in their domestic markets.

The prescriptions offered by Mr. Soros are not as convincing as his analysis, but it is hard to read this book without feeling concerned. One also admires his rigid ability to separate his amoral stance as market participant — "I don't need to be concerned about the consequences of my actions" — with his evident concern as a human being. The rest of us might not find this distinction quite so easy, but it is at least consistent with the philosophy he espouses.

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